Last week I got a contact request from someone I had dealt with a few years ago while trying to sell ITADCollect. After moving jobs, he was now in charge of a SaaS product, and had been tasked with coming up with a pricing scheme for the new product. He reached out for some advice.
Through my work on ITADCollect, and before that, Ornavi at my previous job, I gained a fair bit of experience in launching a SaaS, so I was happy to help, and called him back for a chat. I decided to write this up as an article, as I thought it may benefit others too.
How Do You Price An SaaS
Unfortunately I have some bad news, so I may as well get it out of the way now – there is no easy way of pricing an SaaS. Not only is there no easy way.. but its probably the hardest part of the whole process!
You’ve spent months or years developing your product, you’re finally ready to launch, and you think you can see the light at the end of the tunnel. You can already hear the sound of the till clunking away as the money floods in. You’re just about ready to click book on that business class flight to the Caribbean now that the hard work is over… well hold on there buddy!
Pricing a product is a science in its own right. I guess technically it falls under marketing – so if you’re looking for some help, find a good marketing guru and ask them for assistance. Don’t ask a software engineer… they won’t have a clue 😊
To come up with a price, you will need to do the following:
1 – How Much Do You Need To Make To Cover Costs?
First of all, consider your customer base. Realistically, how many customers can you expect to attract to your platform? How big is the marketplace, and what percentage of this market do you expect to capture? Be realistic here.
Based on the number above, how much will it cost you to support that big a user base? How many AWS/Azure instances will you need to handle the load? How much storage space will you need?
How many employees will you need to keep it running – programmers for updates, tech support staff for technical queries, marketing and sales staff for finding new customers etc.
Add up all of your expected costs for the year, then divide it by the number of customers you expect to capture.
This is how much you will need to charge per year just to break even!
2 – What Is Everyone Else Charging?
Next you need to take a good look at all your competitors in the marketplace, to see what they are charging. There’s no point charging £200/month if everyone else is charging £50 – you have no chance of succeeding!
Compare your product to what else is on the market, and decide what you can justify charging – does your product not offer as munch functionality as the rest of them? You may need to charge a bit less than them. Do you offer far more than all of your competitors’ offerings, or do it in a far more efficient manner? You may be able to justify charging a little more.
Or are you lucky enough to not have any competitors? This is the ideal situation, but it does make pricing a little more difficult. You have no competitors to compare to, but you may be able to find a similar product in a different industry / market. Hopefully you can find something to compare to and see how they have chosen to price it.
3 – Market Research – How Much Will They Pay
The above two should give you a rough idea of what you need to be charging, and roughly what everyone else is charging, but at the end of the day a product is only worth whatever someone is prepared to pay for it.
All you can do now is try out your pricing. Speak to a few potential customers and tell them the price – gauge their reaction. If they’re immediately handing over a credit card and asking to be signed up, you may have under-priced it. If they fall off their seat or go a little faint.. you may have priced it too high.
Don’t be afraid to ask for feedback – most will be more than happy to share what they think of the product, and what they thought of the price.
To Sum Up
There is no magic formula for pricing a product, you just need to see what everyone else is charging, then see what the reaction is to your own product. However, here are a few general tips for pricing:
- Keep it as simple as possible. As much as everyone hates paying for things they don’t need, complicated pricing strategies where everything is extra are equally as annoying. Offer 3 packages that will appeal to as many people as possible. You can always add custom packages if needed.
- Its always easier to discount pricing than it is to increase pricing. Aim high, if people don’t like it, offer them a lower price. No-one likes having the price of something they are dependent on suddenly increasing!
- To slightly contradict the above – if you do find you’ve under-priced your system, there’s nothing stopping you from keeping the existing customers at the agreed upon price, then adding a new higher price for new customers. Call it an early bird discount!
Good luck in coming up with a price for your new product! If you need any assistance, please feel free to get in touch with us.
Nighthawk Software specialises in the creation and management of SaaS products and services. We develop and manage our own product – ITADCollect – A collection management system aimed at IT Asset Disposal Systems – as well as working with a number of partners to develop and support SaaS products and services aimed at their own marketplaces.
Get in touch with us through www.nighthawksoftware.com for a free consultation.